Budget 2020: Local manufacturers disappointed with only 0.25% cess on imported medical devices

Budget 2020: Local manufacturers disappointed with only 0.25% cess on imported medical devices

Though India has an estimated 900-1000 domestic medical devices manufacturers, only 15 companies have a turnover of above Rs 200 crore

Local medical devices manufacturers although welcomed the Budget 2020 with a cess imposed on imported medical devices, they were disappointed with the quantum of it. With the announced cess of just 0.25 per cent, the effective import duty becomes 5.25 per cent.

The local manufacturers, who had been demanding a level-playing field for many years, feel the move will trigger growth in the sector.

"The Indian Medical Device Industry is very hopeful that the fine prints of the Union Budget will have much more in store for the Indian Medical Devices Industry to make quality healthcare accessible and affordable for common masses, enable placing India among the top five medical devices manufacturing hubs worldwide and help end the 80-90 per cent import dependence forced upon us and an ever increasing import bill of over Rs 38,837 crore. It's an excellent idea to tax imports of medical devices to fund the capacity building of healthcare delivery in public healthcare and with twin advantage of accelerating medical devices manufacturing as a 'Make in India' enabler," said Rajiv Nath, Forum Coordinator of Association of Indian Medical Device Industry (AiMeD), a grouping of local medical devices manufacturers.

FULL COVERAGE: Union Budget 2020

"Two years ago the FM increased the duty to 10 per cent from 7.5 per cent and in the evening we saw notification reversing this to 7.5 per cent. This year the FM announced taxation will drive public healthcare funding but the fine print states it as cess, so if duty on a device was 5 per cent, it becomes 5.25 per cent, effectively. This is a meagre increase of 0.25 per cent to protect domestic manufacturing and motivate traders to become manufacturers," added Nath.

Though India has an estimated 900-1000 domestic medical devices manufacturers, only 15 companies have a turnover of above Rs 200 crore. More than 80 per cent of domestic manufacturers are in the small scale sector with a turnover of less than Rs 10 crore. Of Rs 38,837 crore imports in 2018-19, 66 per cent or Rs 25,624 crore worth of medical devices were in the category of electronics and equipment, a lion's share belonging to multinational companies. In fact, most of domestic manufacturers of the Rs 1,05,000-crore industry (at patient level selling price) in India are either closing down their units or idling manufacturing capacities to become importers and traders of medical devices.

Meanwhile, the budget did not consider some of the demands of the industry such as a regulatory framework for all medical devices, curbing MRP and trade margins over imports, restricting imports of pre-owned medical equipments in absence of regulations and preferential pricing for quality products in public healthcare.

In the budget, the FM said there are 20,000 empanelled hospitals in Ayushman Bharat and need more in Tier-2 and Tier-3 cities to benefit poor in these areas. Viability gap funding will be used to help the private sector set up such hospitals in 112 aspirational districts in a PPP mode and proceeds from taxes on medical devices will be used for creating health infrastructure in these districts.

Shravan Subramanyam, Managing Director, India and Neighbouring Markets of Roche Diagnostics India said the proposal to introduce a health cess on import of medical equipment does not fit the narrative. "Currently, the Indian medical devices industry draws on the strengths of international technology to a large extent. The healthcare spends burden on the common Indian almost instantly tends to increase with this cess, in an almost completely out-of-pocket market that India is still," he said.

He said the Finance Minister should adopt a consultative approach in building recommendations from the industry before this is implemented.

"Medical devices received a good amount of attention in this budget. The health cess will add to pricing pressures for these manufacturers and is unlikely to be popular with the foreign manufacturers," said Sameer Sah, Partner, Khaitan & Co.

He noted that India imports significant parts of its medical devices requirements. "While 100 per cent FDI in medical devices manufacturing has been open for quite some time, it remains to be seen how the new scheme for electronics' manufacturing will play out. More importantly, how will this scheme be customised to encourage medical devices manufacturers to make in India?" he said.

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